Pound Euro (GBP/EUR) Exchange Rate Falls as Euro Benefits from Weak US Dollar

Pound Euro (GBP/EUR) Exchange Rate Dips as Euro Benefits from Weak USD

Article updated 16:25, 15/9/2023:

The Pound Euro (GBP/EUR) exchange rate is falling this afternoon, as the Euro benefits from its negative correlation with the US Dollar.

Consumer confidence in the US printed below forecasts, leading to concerns over the US economy. As it relies on consumption, a downtick in consumer spending power due to inflation and high interest rates is weighing on the ‘Greenback’.

Because of this, the Euro has been able to gain ground, leading it to strengthen above Sterling.

At the time of writing, GBP/EUR is trading at around €1.1620, falling by just under 0.4% from the morning’s opening rates.

Original article continues below:

Pound Euro (GBP/EUR) Exchange Rate Rangebound despite Upbeat Market Impulse

The Pound Euro (GBP/EUR) exchange rate is trading within narrow boundaries this morning, amid an upbeat market mood.

At the time of writing, GBP/EUR is trading at around €1.1665, showing little movement from the morning’s opening rates.

Pound (GBP) Firms amid Cheery Trade

The Pound (GBP) is firming against some peers this morning, amid a tentatively upbeat market mood.

However, this is offset by a lack of significant economic releases, which leads to little in the way of catalysts for further movement.

Furthermore, this leaves the Pound vulnerable to continued analysis of the Bank of England’s (BoE) next steps.

Beyond September, investors are growing less convinced of further interest rate hikes from the BoE.

Francesco Pesole, FX Strategist at ING, commented:

‘The dovish tilt by the ECB likely added fuel to the ongoing dovish re-pricing of Bank of England rate expectations, and markets now price in only 34bp to a peak, a 40bp correction over the past month.’

With this in mind, Sterling could be unable to gain significant ground against its peers as investors continue to pare back bets.

Euro (EUR) Edges Higher amid Broad USD Weakness

The Euro (EUR) has managed to recover some of yesterday’s losses this morning. The common currency’s negative correlation with the US Dollar (USD) is providing some support, as the market mood improves.

However, the optimism is likely capping the Euro’s gains due to its safer stature. The shift in mood comes from upbeat economic news from China.

Chinese industrial output and retail sales grew at faster-than-expected rates in August. This is suggesting that the world’s largest economy may be finally stabilising after months of turbulence.

As such, investors appear to be seeking more risk-sensitive assets this morning, preventing EUR from strengthening significantly.

Elsewhere, EUR’s gains may be being trimmed further by a continued withdrawal of rate hike bets. Yesterday, the European Central Bank (ECB) appeared to enact its final interest rate hike.

In a speech, ECB President Christine Lagarde stated:

‘[Interest rates have] reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.’

Pound Euro Exchange Rate Forecast: Lack of Data to Limit Pairing?

Looking ahead for the Pound, the short supply of data continues through to early next week. Because of this, Sterling is likely to be left vulnerable to shifts in the market mood.

As an increasingly risk-sensitive currency, a souring market mood could weaken GBP against safer assets. However, if the market mood improves, bullish trade would likely boost Sterling against its peers.

For the Euro, the story is similar. With data releases light on the ground, the common currency may have to depend on bearish trade to gain ground.

Similarly, if analysis of the recent ECB comments continues, it may struggle for additional support as investors anticipate the end of the current tightening cycle.

John Mulcahey

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